After a 15-part comment letter exchange with the Securities and Exchange Commission over its compliance with new revenue recognition rules, Kingsway Financial Services opted to restate.

The Canada-based company filed its third-quarter results making immaterial revisions to its first-quarter and second-quarter filings related to its adoption of Accounting Standards Codification Topic 606 on revenue recognition. Kingsway is a holding company with U.S.-based operating subsidiaries doing business in insurance, extended warranties, asset management, and real estate.

The company reported a material weakness in internal control over financial reporting after one of the SEC’s comment letters encouraged the company to review its controls as a result of the necessary adjustment. The SEC released the comment letter conversation in December, indicating an exchange of 15 letters over 194 days. In an alert on the restatement, Audit Analytics says that’s four times longer than the average comment letter exchange with the SEC.

The SEC kicked off its inquiry in April with 10 comments on the company’s first 10-Q of 2018, addressing a range of topics including provisions for unpaid losses and loss adjustment expenses, intangible assets, fair value of financial instruments, and regulatory capital requirements. The ongoing exchange focused on the company’s adoption of ASC 606, however, and the issue that drove restatement focused on warranty subscriptions sold by two subsidiaries, said Audit Analytics.

The SEC asked Kingsway to explain why it determined it was appropriate to recognize commissions on product warranties at the time of the product sale, as well as commissions on new homebuilder warranties at the time home certifications. ASC 606 generally provides that costs to obtain contracts should be capitalized and amortized over time rather than expensed immediately.

Mingled into the analysis was Kingsway’s assertion that it was not acting as the principal in the relevant contracts, but as an agent. That is important because it forms the basis for whether a company will recognize revenue on a gross or net basis. The SEC said it found the company’s disclosures to be misleading.

In continued exchanges, the company eventually acknowledged the SEC’s position and indicated it planned to make an out-of-period adjustment in its third-quarter filing. The SEC pushed back and insisted the company restate its first- and second-quarter filings. It also urged the company to reconsider the effectiveness of its internal controls.

“The adjustment in methodology means that the company will recognize revenue more slowly than the company’s initial application of ASC 606,” Audit Analytics says. “The error was corrected as a revision restatement that decreased net income by $990,000.”

Accounting experts have indicated companies would be forced to reconsider some of their quarterly filings as they approached their first year-end reporting under ASC 606 at the end of 2018. The SEC has indicated it plans to scrutinize year-end filings.

“If we encounter material items that appear to conflict with the standard or material disclosures that are missing, you can expect a comment from the staff,” said Kyle Moffatt, chief accountant in corporation finance at the SEC, in November. “Over the course of the next few months, you will start to see comment letters released, and you’ll see we’re really focused on material items.”